Shareholders in global share registry firm Computershare Limited (ASX: CPU) watched on as the price of their shares sunk around 60 cents (5%) in the wake of the release of the company's full year profit result.
The stock is now showing a gain of just under 2% in the past six months, compared with a 3.6% gain in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). While this is hardly serious underperformance, given the business is regarded as high quality by many investors, any price weakness is worthy of closer inspection.
Here's what Computershare reported
Total revenue of US$2.05 billion was ahead of consensus but was effectively flat on the prior year. Adjusted net profit meanwhile jumped 10% to US$335 million which was also above consensus (according to Commsec). The rise in profit has in turn led the board to declare a rise in the final dividend up 7% to 15 cents per share partially franked. Overall, a reasonable but not stellar result.
So why the fall
Computershare trades on a relatively high earnings multiple. This multiple is justified based on business quality, competitive advantages and the defensive earnings base but it does also require a reasonable growth rate to be achieved. Given management's guidance for adjusted earnings per share to grow by only 5% for the current financial year, this low growth would appear the most likely cause of the selling pressure.
What now
Computershare has produced a total shareholder return of 15.5% per annum for the last decade – that's a superb return. Despite the company's size, there are still significant opportunities for revenue and earnings growth and it seems likely that the growth rate could increase in future years. I for one will be keeping a close eye on the stock for any further price weakness.
